Beige Book Report: New York
March 01, 2017
Summary of Economic Activity
Economic activity in the Second District has picked up since the last report, expanding at a modest pace, and labor markets have strengthened. Increases in both input costs and selling prices have become more widespread. Manufacturers noted a brisk pickup in business activity in early 2017, while service-sector contacts have continued to report steady to moderately expanding activity. Consumer spending has been subdued in recent weeks, despite a surge in consumer confidence. Housing markets have been mixed, with weakness continuing at the high end, while commercial real estate markets were steady to stronger. Residential construction has remained sluggish, though office construction has picked up slightly and industrial construction remains fairly robust. Banks reported that loan demand retreated and that delinquency rates rose modestly.
Employment and Wages
The labor market has strengthened in early 2017. Hiring activity has picked up--especially among service firms. In particular, businesses engaged in education and health, information, professional and business services, and wholesale trade reported that they have increased staffing levels. On the other hand, manufacturers report steady employment, and leisure and hospitality firms mostly indicated steady or declining employment. Businesses in almost every industry sector plan to add staff in the months ahead, on net.
Contacts at employment agencies reported that the labor market has remained tight and that hiring activity has been fairly brisk for this time of year. One contact in upstate New York noted a recent pickup in hiring at manufacturing and tech firms, while an agency in New York City reported brisk hiring from small to medium sized financial firms.
Contacts in most industries reported continued modest wage growth, though contacts in the leisure and hospitality sector noted a more significant pickup. Contacts at major employment agencies across the District report that starting salary offers have generally been steady to rising modestly, though they have risen more noticeably for some high-skill workers that are in short supply. While it is too early to assess any overall effects on wages and employment resulting from the January 1 increase in New York State's minimum wage schedules, a couple of contacts in the leisure and hospitality industry indicated that they have faced some challenges.
Prices
Business contacts in all major industry sectors reported widespread increases in input prices--generally more so than in the last report. Contacts in most industries anticipate further increases in the months ahead, except in the transportation sector, where input costs are expected to remain steady. Selling prices are reported to be rising in the wholesale trade and leisure and hospitality industries but generally stable in other sectors, notably retail trade.
Consumer Spending
Retail merchandise sales were generally characterized as sluggish in January and early February. However, on-line sales have reportedly been robust, with one major chain noting double-digit percentage growth over the past year. Two contacts attribute some of the recent weakness in seasonal merchandise to unseasonably mild weather. Despite the disappointing sales performance, inventories were said to be at satisfactory levels. Retail contacts continued to express concern about the near term sales outlook, with one noting that a number of store closings are in the works across the District.
Auto dealers in upstate New York reported that sales of new vehicles were steady at a strong level in early 2017, while sales of used vehicles picked up further. Inventories of new vehicles have come down but remain somewhat elevated. Retail and wholesale credit conditions were reported to be in good shape.
Consumer confidence in the Middle Atlantic states (NY, NJ, PA) continued to climb in January, reaching its highest level in more than a decade.
Manufacturing and Distribution
Manufacturers reported that business activity has picked up sharply in early 2017, with new orders, unfilled orders, and shipments rising noticeably. Manufacturing contacts also continued to express widespread optimism about the near-term outlook. Businesses in the wholesale trade and transportation industries reported more modest improvement but remain widely optimistic about future business conditions.
Services
Service-sector businesses continued to report mixed but, on balance, steady business conditions in early 2017. Contacts in both the finance and health & education sectors noted a pickup in activity, while those in leisure and hospitality and information sectors reported some softening. Looking ahead, service-sector businesses remained generally optimistic about the outlook--particularly those in the professional & business services industry. Tourism activity has shown signs of continued softening, with Broadway theaters reporting sharp declines in attendance in January and especially February, and hotels generally reporting lower occupancy rates.
Real Estate and Construction
Housing markets have been mixed across the District since the last report, with the high end of the market continuing to lag. New York City's rental market has weakened further. Rents on larger apartments have continued to decline, while rents on smaller units have been flat; moreover, landlords have been offering more generous concessions in early 2017. Apartment rents have been flat in the areas around New York City but have continued to edge up across upstate New York. Rental vacancy rates have edged down in New York City, reportedly due, in part, to the increased concessions. Across the District overall, vacancy rates have been mostly steady.
New York City's co-op and condo resale market has been flat in early 2017. There was a pickup in activity in January, but that has subsided in the first half of February. Prices on larger units--especially new development--have continued to slip, while prices on smaller apartments have been steady to up slightly. The inventory of newly developed units has continued to rise; the inventory of resale units has risen but remains exceptionally low. Bidding wars have largely subsided.
Elsewhere across the District, market conditions have been more favorable. Home sales in the suburbs around New York City have been quite robust; prices have remained flat in northern New Jersey and Westchester but have begun to pick up on Long Island. In upstate New York, the market has continued to strengthen, with brisk sales activity, rising prices, and extremely tight inventory.
Commercial real estate markets have been steady to somewhat stronger in the first few weeks of 2017. Office markets were little changed--both in and around New York City, as well as in upstate New York--and asking rents have mostly been stable. However, the market for industrial space has continued to strengthen. Across the New York City metro area, industrial vacancy rates have declined further and rents have continued to rise. In upstate New York, vacancy rates have been steady, while rents have moved up noticeably.
New home construction--both single-family and multi-family--has been sluggish across most of the District. New office construction has picked up somewhat but remains fairly subdued. However, there continues to be a good deal of office construction in progress in New York City. Industrial construction has been fairly strong.
Banking and Finance
Small to medium sized banks in the District reported weaker demand for consumer loans and residential mortgages, but no change in demand for commercial mortgages or C&I loans. Bankers reported that credit standards were unchanged across all loan categories. Spreads of loan rates over cost of funds were unchanged across all loan categories except residential mortgages, for which bankers reported widening spreads. Respondents also reported an increase in the average deposit rate. Finally, bankers reported higher delinquency rates across all loan categories except commercial mortgages, for which bankers reported no change in delinquency rates.